ID :
105405
Tue, 02/09/2010 - 00:27
Auther :
Shortlink :
https://www.oananews.org//node/105405
The shortlink copeid
Court says KIKO currency option not unfair
By Kim Eun-jung
SEOUL, Feb. 8 (Yonhap) - A Seoul court on Monday ruled in favor of banks in a
court battle over a controversial currency option derivative, going against a
local firm that sought to nullify its contract and demanded return of funds for
what it called an "unfair" agreement heavily biased toward the banks.
The currency derivatives, called Knock-in, Knock-out (KIKO), were sold by about a
dozen banks to a range of small and medium local exporters that used the products
to hedge against volatile currency swings. But following the onset of the global
credit crunch in 2008, the Korean currency tumbled 25.7 percent to the U.S.
dollar in that year alone, leading to heavy losses for KIKO buyers.
South Korean firm Soosan Heavy Industries Co. filed a suit against Citybank Korea
and Woori Bank, which sold the contract in November 2008, seeking to nullify what
it called the agreement and demanding reparation from the banks. The firm held
the banks responsible for having failed to notify the company of the potential
risks.
"It is hard to say that the product is not adequate for hedging currency risk
simply because (Soosan) got results they had not anticipated at the time they
made the contract," Presiding Judge Lim Sung-geun at the Seoul Central District
Court said.
"KIKO is a product designed to partially hedge risk and the banks' profits (from
KIKO) were not excessive compared to the interest earned on other financial
transactions," the judge said, noting the loss claimed by the plaintiff assumed
"the worst scenario."
The banks argued that the KIKO products were not intended to result in
unreasonable losses for buyers as a flurry of firms have argued in court. The
banks said the responsibility for the misfortune rests with those companies,
which entirely ruled out the possibility that the won's potential plunge could
result in heavy liabilities.
With other similar cases pending in court, industry watchers expect the ruling on
the controversial contract could affect the remaining cases. In 2008, nearly 100
small-sized companies filed petitions against banks that sold them similar
options after suffering heavy losses.
ejkim@yna.co.kr
(END)
SEOUL, Feb. 8 (Yonhap) - A Seoul court on Monday ruled in favor of banks in a
court battle over a controversial currency option derivative, going against a
local firm that sought to nullify its contract and demanded return of funds for
what it called an "unfair" agreement heavily biased toward the banks.
The currency derivatives, called Knock-in, Knock-out (KIKO), were sold by about a
dozen banks to a range of small and medium local exporters that used the products
to hedge against volatile currency swings. But following the onset of the global
credit crunch in 2008, the Korean currency tumbled 25.7 percent to the U.S.
dollar in that year alone, leading to heavy losses for KIKO buyers.
South Korean firm Soosan Heavy Industries Co. filed a suit against Citybank Korea
and Woori Bank, which sold the contract in November 2008, seeking to nullify what
it called the agreement and demanding reparation from the banks. The firm held
the banks responsible for having failed to notify the company of the potential
risks.
"It is hard to say that the product is not adequate for hedging currency risk
simply because (Soosan) got results they had not anticipated at the time they
made the contract," Presiding Judge Lim Sung-geun at the Seoul Central District
Court said.
"KIKO is a product designed to partially hedge risk and the banks' profits (from
KIKO) were not excessive compared to the interest earned on other financial
transactions," the judge said, noting the loss claimed by the plaintiff assumed
"the worst scenario."
The banks argued that the KIKO products were not intended to result in
unreasonable losses for buyers as a flurry of firms have argued in court. The
banks said the responsibility for the misfortune rests with those companies,
which entirely ruled out the possibility that the won's potential plunge could
result in heavy liabilities.
With other similar cases pending in court, industry watchers expect the ruling on
the controversial contract could affect the remaining cases. In 2008, nearly 100
small-sized companies filed petitions against banks that sold them similar
options after suffering heavy losses.
ejkim@yna.co.kr
(END)
